Know Difference between Debt and Equity Funds

There are innumerable opportunities for people to create wealth. As an investor, there are certain factors one must know to understand the ins and outs of various financial assets. They must know what to choose and which fund suits their goals. And if they don’t, that’s where Mutual Fund advisors and financial advisors play a huge role in guiding them in their investment journey. Each investor’s financial condition and commitments differ from one another. Personalized investment solution is vital now. As risk taking ability ranges from person to person, the financial asset one decides also differs accordingly. Generally, investors either prefer debt fund or equity fund.

Whenever a new investor joins the world of investments, debt and equity funds are most common funds introduced to them. Let’s understand the difference between debt and equity.

The difference between the two comes from where the capital is invested. While debt funds invest in fixed-income securities, equity funds invest principally in equity share and related securities. Both equity and fixed-income securities have various attributes that determine how the schemes would perform.

Debt FundsDebt mutual funds predominantly invest in fixed-income debt securities. Most of the money gathered from investors into fixed income instruments comprise corporate bonds, government bonds, certificate of deposit, treasury bills, bonds issued by banks, etc.

Debt funds are considered safest investment instruments available to investors, who wish to earn returns without venturing on risky avenues. Also, the returns are stable, as opposed to returns from equity funds which are highly volatile.

Equity FundsThese funds invest their assets into stocks of different companies across market capitalisation, with an aim of generating higher returns. These funds are commonly known for generating better returns as related to debt funds but riskier because of the dependency on market conditions.

The benefits of investing in mutual funds are money management by experts, low cost, convenience, diversification, systematic investment, flexibility and liquidity. There are different benefits aligned with equity investment schemes, for the investors keen to put their assets into these funds.

The major benefit of investing in these funds is that you need not bother in selecting stocks and sectors to invest. Profitable equity investing requires a lot of analysis and awareness. One needs to understand and study the performance of a company before you invest. The subscribers in the form of dividends can earn extra income when the equity funds deliver the same.

Debt Funds are associated with low risk compared to equity funds. While equity is riskier than debt and is generally volatile. When you invest in equity, you become a shareholder of the company and you may gain profits of the company in the form of dividends. The returns from equity funds are still comparatively higher than the debt funds. Hence, an individual needs to know what her needs in order to decide which fund works. Along with their risk-taking ability and time horizon.

While investing in mutual funds, an individual faces the debt vs. equity debate. As an investor, diversifying your investments is vital. Investing in both types of funds can help you better in diversifying.

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